After Commander of the Allied Powers, Douglas McArthur

After defeat in World War II (1939-1945), Japan suffered major losses and a series of problems that needed to be addressed: Over 13 million people were left unemployed, there was an outbreak coal and food shortage, and high levels of inflation that severely affected the economy, however, the United States Occupation of Japan sought to address these problems.

The occupation, led by the Supreme Commander of the Allied Powers, Douglas McArthur aimed to demilitarise the economy and democratise Japan. These reforms included removing business conglomerates, known as the Zaibatsu from power. Through a series of laws, the conglomerates sold their stock and broke up their holding companies as these companies contributed to the mass-production of war materials. This breakup allowed competition to take place in industries, leading to rapid growth while demilitarising the economy. Additionally, Japan landownership was predominately feudalistic prior to the war, in order to democratise the country the SCAP decided to transfer land ownership to those who worked on it. This reform allowed Japan to rapidly recover and modernise the country and by the 1950’s, 90% of all farms were owner-operated. Another reform implemented was the formation of labour unions under the Trade Union Law (1945), allowed private industry workers could collectively bargain and strike, prohibit unfair labour practices of employers, and implement the employee-favoured lifetime employment system. Hence, real wages and working conditions increased and the favourable lifetime employment system was introduced. This practice expanded into the domestic markets, which greatly increased the overall productivity of the developing economy. The policy known as the Dodge Plan, created by Detroit bank president Joseph Dodge, aimed to bring back the Japanese economy to full strength and remove Japan’s reliance USA occupation and stabilisation while resolving the inflation problems. This policy was achieved through a balanced budget, suspension of new loans from the finance bank and the abolition of subsidies. The plan’s goal was achieved with the American occupation ending in 1951. The occupation was one of the main reasons for the economic miracle as, when Japan surrendered its right to use a military force and became reliant on protection from the USA, there was a significant decrease in spending for defence, which could now be invested into an economic recovery.

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However, policies such as the Dodge Plan would not have been as successful if it were not for the Korean War (1950-1953). When the war began the total worldwide economic increase by 34%, with Japan experienced a rapid boost of 70% in production. In these years, the country experienced increases investment and technological innovation. This rapid increase in production led to Japan achieving its goals of economic recovery and stabilization.

After a period of Japan entered, a period of rapid economic growth from the 1950’s lasting until the early 1970’s. One Political factor that influenced growth in the early stages “miracle” period was the Yoshida doctrine, named after Japan’s first Prime Minister Shigeru Yoshida who is considered to be the father of the modern Japanese economy. This doctrine emphasised Japan’s role as a diplomatic, pacifist state and aimed to decrease military spending to focus solely on developing the economy. Likewise, the Ikeda income-doubling plan implemented in the 1960’s is considered as a reason why Japan continued its miracle period. Prime Minister Hayato Ikeda’s plan aimed to double income earned by workers through investments made by the government, this led to a high standard of living from 1961-1970’s and resulted in an average growth rate of 10.8% per year. By 1968 Japan become the second largest economy. Another factor of the governmental-led growth was the role the Ministry of International Trade played in development. The MITI gave critical advantages i.e. Financial aid and new technology to industries seen to have long-term success in an international market. This lead to a distribution of guidance and technologies between companies and industries, which allowed Japan to industrialise as a whole.

Apart from political factors, Takada attributes that the economic miracle could not have been achieved without the skills of the Japanese people to adapt and improve foreign skills and technology. Japanese businesses changed corporate conditions such as removing owner-managers and replacing with hired professional, increased competition in international and domestic markets. Effective relationships between employers and workers provided loyal and hard-working employees, which bolstered productivity. Technological innovations that the Japanese created eg. Low-cost mass-production systems allowed Japan to compete successfully with other international market industries.

Takada concludes his paper noting that although multiple reforms and policies to implemented during the occupation and the economic miracle contributed to Japanese growth; the basic factors of growth were already in place by the Japanese prior to World War II. Takada puts the most emphasis on the people’s ability to combine, adapt and improve knowledge and skills from foreign countries and implement them to fit the Japanese system, which allowed the nation to achieve its rapid recovery and economic status.In the mid 1880’s, the government implemented a “sweeping policy” with the intention of modernising the country to become economic equals to the industrial west. The policy under the motto “Fukoku ky?hei”, “Enrich the country, strengthen the military.” resulted in Japan growing it is GDP per capita to 42% and 41% of Brittan’s and the United States at the start of the Pacific War.By the end of World War II in 1945, all the economic gains Japan had created were erased, leaving the country to rebuild to its former economic power. During the post-war recovery period the Japanese economy grew at an average annual rate 7.1% and by 1956, Eleven years after the war ended, Japan’s real GDP per Capita had passed its pre-war economic level. By 1973, the GDP per Capita levels were at a significant 95% compared to the USA and Britain sitting at 69%.In a historical context, the reasons for Japan’s rapid recovery rate in 70 years after World War II can be seen as an extension of the national “catch-up” effort that started in the mid-to-late 19th century as both periods of growth had similar aspects. Both the pre and post-war economies were considered “backward’ compared to other internal industrial economies. Furthermore, due to the “backward” nature of these economies, there were significant benefits and opposites for growth when the country imported technology relating to manufacturing, social and economic systems and institutions. This importation and adaptation signified a high potential for growth.Tetsuji states the reason why the economy flourished, was due to one main governmental policy. The relocation of resources i.e. Labour from low-productive sectors like agriculture were moved into to high-productivity industries. This migration of labourers into high-growth industries is attributed to the Post-war civil code and constitution, which prohibited patriarchs from forcing their male heirs to stay in the farmlands, hence removing a major barrier to the migration of resources. However, Tetsuji debates that this migration was not made possible through the new code and construction, due to the fact of the large income differences between the sectors; patriarchs would have had incentives for migration. He proposes that the wartime government’s labour mobilization plan, in which labour was relocated into the munitions industry influenced the post-war relocation of resources. This wartime policies included nationalising employment agencies and making them work closely with local schools to place graduating students (a fundamental source of new labour) into jobs in broader areas. This type of government-supported, job matching system provided the basis for the post-war reallocation of labour, particularly the sh?dan sh?shoku (group employment) programmes that aided young rural graduates to travel to the city for work. Furthermore, the wartime government policy of relocating capital to priority funding of war industries and governmental bonds provided the financial basis for economic growth through the effective absorption of savings and allocation of capital. Tetsuji concludes that the Japanese recovery stems from the large technological gap between worldwide and Japanese industries and, a large agricultural industry with low productivity. These potentials for growth could not have been achieved without the policies that influenced growth during the wartime period.In his article, Crawford summarises that many papers dealing with the Japanese economic miracle are highly formulaic, in which historians pick out an aspect of management style or industrial policies are the main factors to Japan’s economic success, and then shape an overreaching argument about it. Crawford debates that authors tend to put too much focus on management innovations while disregarding the importance of trade and industrial policies.Crawford views that the late 1980’s revisionists, give an effective alternate view to the economic miracle. The revisionist historians argued that economic transformation was due to controversial trade policies and powerful industrial cartels that disregarded the impact and well-being of Japan’s citizens. Although Crawford states that these historians have made valid points notably, the role the Japanese government played in the economic development, he believes that this revisionist all had largely biased negative views on Japan. Crawford argues that as well as governmental involvements, large companies and well-educated workforces also factored into the economic equation. Crawford puts emphasis on the Keiretsu (Large business groups that connected banks, trading companies and industrialist through stock and established exclusive relationships and is considered as a revamped Zaibatsus) as a contributor to Japanese success because after the war these businesses gained economic success and connections, allowing them to weaken both domestic and foreign opponents. This Keiretsu created an environment of economic competition bolstering industries that focused on international markets with many Kaisha (Japanese companies) going to great lengths to keep up with competitors i.e. both copying and innovation production techniques. Crawford continues to state the importance the government played into the success of the Keiretsu, since they acted as business adjunct giving the Keriatsu advantages such as cheap credits, administrative guidance and tax breaks. Crawford criticises that although the Keriatsu grew rapidly, it came at a price of leaving their employees and the rest of society in low-standards of living. Crawford also accredits historical factors for Japan’s thriving economy. Since Japan economy was small, it avoided undue international attention, furthermore, the rate of growth of Japan was suffcient enough to appease an abused workforce and their attention to high-value sectors in an international market that focuses on volume production. The article then goes onto the reasons why the 1980’s Japanese recession occurred, blaming traditional Japanese business i.e. Permeant bureaucracy and lifetime employees practices, which once led to the economic miracle, as the factors that need reforming if Japan wishes to continue as a leading market. Crawford ends his reinterpretation of the Japanese miracle stating that it is not Japanese virtues of diligence, thrift, harmony that cause the economic miracle, which many of the first historians were led to believe but rather comes from constricting and stifling, unfavourable business practices that in a modern economy, needs to be reformed.Elligton believes that Japan’s economic success comes from its economic history and is fundamental to understanding the causes of Japan’s economic growth and continuing prosperity and was achieved through 11 factors. The first factor is that the Meiji leaders adopted a Prussian-styled government that consists of state-assisted capital, with legal-framework adjusted to serve state interests and the economy that aims to serve the country, not the individual. The Government implemented policies that protected and prompted particular industries while discouraging both foreign and domestic competition through tariffs, informal trade barriers and consumer production regulations. The second cause is that the American occupation of Japan instituted policies that guaranteed lower inflation and created higher saving rates. Furthermore, the start of the Korean War (1950-1953) resulted in Japan receiving a major economic boost through great amounts of purchases of American goods and services. The fourth aspect of Japan’s economic success comes from the World Free Trade Boom. During the 1930’s and onwards, free trade increased, creating a beneficial situation for Japanese product exports. Moreover, in the 1950’s due to Japan started producing goods that required few imports and expensive raw materials, which many leading industries were once dependent on the Japanese export were less expensive. This resulted in an export boom occurring in the 1960’s due to a shift from dependent to less dependent industries. The late 1950’s also saw that over half of the Japanese population lived on farms. A well-developed education system combined with a high birth rate resulted in a large supply of rural young, well educated, graduates searching for employment in industrial sectors. Hence, many industrial sectors had a surplus of a well-educated workforce. Apart from a surplus of an educated workforce Japan had a large surplus of funds for investment due to high savings rates industrialist were aided to obtain huge funding for expansion cheaply. The eighth and ninth factors that contributed to Japan’s economic success come from business practices. Workplace policies such as lifetime employment, seniority systems and worker participation contributed to productive enterprises. In addition, it was due to high domestic private competition in industries i.e. Automobiles and electronics, which created powerful entrepreneurship-based companies that, benefitted the economy as a whole.

In a dominant-party system run by the liberal Democratic Party, Japan avoided political unrest, which hurts both developing and developed economics, thus Japan could develop its economy under a stable political situation. The final reason the state could recover rapidly and obtain an economic miracle was its low military expenses Since the US saw Japan as strategically important in the Cold War, the USA handled a significant portion of Japan’s defences, and hence Japan could now spend its new large portion of wealth on growing the economy. Japan was able to achieve a sustained capita per income per capita from the 1880’s to the 1970’s through industrialisations based on four unique factors. A proto-industrial base was sufficient to sustain craft production in rural and urban areas before industrialisation. The second factor was Japan’s investment-led growth as domestic investment was fundamental to developing industries and infrastructure. Total productivity growth, obtaining increased output per unit of input, by adapting imported technology through high levels of social capacity (an economic idea that refers to the connections between individuals and entities that can be economically valuable. (Investopedia, 2017)) Finally, the system of dualism, where capital-intensive sectors obtained high levels of capital and wages while labour intensive sectors had relatively low levels, although dualism helped achieve industrialisation, it contributed to income inequality and social resentment in Japan.

The sustained growth of proto-industrialization in urban Japan was achieved during the Tokugawa period where the government focused on urbanisation and emulating the West. Increased rice production and the growing of industrial crops such as cotton during the period provided domestic sources, which were primary to Japan’s future industrial success.

Japan continued its industrial success prior to World War II. The policy of Fukoku ky?hei aimed to create a wealthy country with a strong modernised army and navy. Central governmental policies such as compulsory primary schooling and the ministry of finance opening the Bank of Japan in 1882 allowed the state’s economy to remain stable as both traditional and modern sectors grew at equal rates during this period. The Zaibatsu, companies that connected enterprises such as banks, manufacturers and trade companies were also primary to the country’s stable economy but also the mass-production of Japan’s war materials, thus Japan entered into World War II in hopes of becoming the dominant military power in East Asia and the Pacific.

After Japan surrendered to the Allied powers in 1945, the country began an economic and institutional reconstruction under the United States occupation lasting until 1951. Reforms included the liquation of the Zaibatsu, the removal of landlordism through land reforms, the allowance of collective organising and bargaining, compulsory middle-school education and the creation of national universities. During this period, Japan experienced an advancement in social capacity. The results of the education reforms and Zaibatsu termination resulted in an increase of social capacity for adapting oreign technology. Furthermore, land reforms and rice-supported programmes, which guaranteed farmers sustainable incomes, removed rural and urban tensions and created equality, addressing the impacts of dualism while increasing social capacity. Japan also benefitted from the United States involvement in the Cold War. To contain Asian communism, the USA brought the country under its nuclear sphere through a security treaty, hence American companies licensed technology to Japan and Japan redirected its trade to the large and expanding American market.

After recovering from the war period, Japan entered a miracle growth phase from 1953 until the 1970’s. The causes for this period of growth can be attributed to factors that increased social capacity, such as the Ministry of Trade and Industry oversaw industrial policies that increased social capacity through lowering the cost of sourcing foreign technology for Japanese companies. The second factor is credited to internalisation of labour markets, which also increased social capacity as Japanese companies adapted American inspired concepts such as the “Just in time system”, and quality control groups to the country’s market.

Mosk concludes that the miracle growth in Japan was due to a lengthy continuance of historical processes which started in the 1880’s involving increasing human capital, amassing of physical capital, the construction of scale economies and the adaption of imported foreign technology combined with a global environment in which Japan could achieve economic success.